Put Emphasis on Initial Margin Mark Up

July 29, 2009byTim Malone

Here is point number two in the Twelve Components You Need in Your Merchandising Plan: Put Emphasis on Initial Margin Mark Up. When you review a new piece of jewelry do you think about the price you will have to sell the item at? Too often products get purchased based on the buyer’s appreciation for the design and style of the jewelry without a clear understanding of the potential discount that might be required to sell the product to a retail customer. Discounted products can represent a manager’s inability or unwillingness to have total recall of the actually selling price after all discounts. It is very important to be keenly aware of price rounding and how you might have to take less margin to keep a product’s initial price within a particular price range. For example, a ring might price out at $515 using your desired margins and cost of goods, but you know that a price of $495 sounds so much more affordable to shoppers. Sure it’s only $20, but in this economy maximizing your opportunity to convert every sales transaction is very important. Plus that is twenty dollars of less profit each time you sell that item until you are able to price it over the $500 price barrier.

Be sure to take a look at price ranges. You might find you have several rings at $495, but lack rings at $295 and $395. Of course these sorts of holes in an inventory price range happen all the time through product sales. What sort of system do you have set up to identify these sorts of holes in your on-going inventory and how quickly can you get these items back into inventory? Developing systems to maximize your margins is very important and putting more emphasis on initial margin mark up and tracking discounts from the initial selling price are key functions of merchandising management.